Prepare Your Company to Sell – Part One
At C2G Advisors, we are regularly asked, “what steps can I take to prepare my company to sell”. Let’s unpack this question in a three-part series. Buckle-up!
For this issue, I am going to focus solely on Revenue Growth. Ancillary revenue streams are extremely important but will not be broached in this particular article.
Let me pause and say that it is never too early or late to begin preparing your company for its eventual sale. While having 36 months of your financials all pointing “up and to the right” is the Holy Grail, that is just not feasible for many companies…and that is OK.
Ok, rant over. Back to Revenue Growth. This is achieved in two ways, inventory growth and revenue growth per inventory. Simple, right?! Unfortunately, these are two of the toughest things to achieve, if you haven’t yet raised several hundred million dollars 😉
Adding inventory to your portfolio is the best way to achieve revenue growth. This is achieved both organically and inorganically. For most companies, however, organic growth is the only feasible route. This is easier said than done, as you and your five competitors are all vying for the same house. Fortunately, there are companies around whose sole purpose is to assist with organic growth. Vintory is one of those companies. Brooke Pfautz, CEO of Vintory, said the number one thing a property manager can do immediately to see results is update their homeowner landing page. You can find more at http://www.vintory.com
Let’s look at an example:
- You add a home that does $50,000/year in gross rents to your company. On average, you will bring 10% of that to your bottom line…$5,000/year in Profit. The average company sells for a 4 multiple, so not only does that home bring you $5,000 profit every year, but when you sell, you will get $20,000 for that particular home!
- Let’s continue: With the assistance of Vintory, you have now grown your company to 100 homes that each do $50,000/year! $5,000,000 in total gross rents. 10% of that, and your profit is $500,000. Now you are ready to retire to the Caribbean, and you sell for $2,000,000. Bravo!
Revenue Growth per Inventory
So, you’ve sold your company and retired so you can sip on Mai Tais and relax on a beach for the next decade. What if I told you that you could have sold for more?! While inventory growth is the most important lever, extracting the highest possible revenues from each unit is the next step. This is achieved by yield management through the use of dynamic pricing. If that sounds rather foreign and confusing, you are not alone. Fortunately, there are fantastic companies like Pricelabs (www.pricelabs.co) that will assist you. Richie Khandewal, Co-Founder Pricelabs, said the number one thing a property manager can immediately do to see incrased RevPars is …
Let’s take the example from above:
- You have grown your company to 100 units, but in this scenario, you are using a company like Pricelabs to help you with your yield management. With their dynamic pricing, your homes now do 30% higher in revenues! So, your 100 units now are averaging $65,000/year. Your total gross rents are now at $6,500,000. 10% of that, and your profit is $650,000. You sell for a 4 multiple, and you get $2,600,000! That is an additional $600,000 straight into your pockets. Those Mai Tais are now tasting significantly better!
In the next issue, we will dive into the expense side of the equation.